NZX Ltd v Ralec Commodities Pty Ltd
[2014] NZHC 376
•6 March 2014
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2011-485-1299 [2014] NZHC 376
BETWEEN NZX LIMITED
Plaintiff/First Counterclaim Defendant
ANDRALEC COMMODITIES PTY LIMITED First Defendant/First Counterclaim Plaintiff
RALEC INTERACTIVE PTY LIMITED Second Defendant/Second Counterclaim Plaintiff
GRANT DAVIS THOMAS Third Defendant
GRANT THOMAS NOMINEES PTY LIMITED
Fourth Defendant
DOMINIC LUKE PYM Fifth Defendant
PYM FAMILY PTY LIMITED Sixth Defendant
NZX HOLDING NO 4 LIMITED Second Counterclaim Defendant
MARK RHYS WELDON Third Counterclaim Defendant
Hearing: 30 January 2014
Counsel: B R Latimour and B M Cash for Plaintiff/Counterclaim
Defendants
T J North SC, J K Scragg and P H Higbee for Defendants/Counterclaim Plaintiffs, together with N Moncrieff from the Victorian Bar
Judgment: 6 March 2014
NZX LIMITED v RALEC COMMODITIES PTY LIMITED [2014] NZHC 376 [6 March 2014]
RESERVED JUDGMENT OF DOBSON J
Contents
NZX application requiring Ralec to complete revised list of discovered documents................... [2] Counterclaim defendants’ application for increased security for costs ...................................... [43] Challenge to NZX’s confidentiality claims .................................................................................... [52] NZX correspondence with Ralec shareholders ............................................................................. [64] Further interlocutory steps............................................................................................................. [72] Costs ................................................................................................................................................. [74]
[1] A range of concerns arising in the interlocutory stages of these proceedings was argued in four applications. The proceedings involve claims by the plaintiff arising out of its purchase of businesses from the defendants, and counterclaims by the defendants for alleged deficiencies by the counterclaim defendants in their post- acquisition operation of the businesses that are said to have compromised the prospects of the defendants earning additional consideration for their sale. In this judgment I will refer to the plaintiff/counterclaim defendants as NZX, and to the defendants/counterclaim plaintiffs as Ralec.
NZX application requiring Ralec to complete revised list of discovered documents
[2] A major change to the scope of discovery obligations was effected by the amendment to the High Court Rules which came into effect on 1 February 2012. The former test, classically referred to as Peruvian Guano, required parties to discover documents that were relevant to issues in the case, and extended to
documents that might lead to a chain of inquiry. 1 The new rules reflect a recognition
that the disproportionate work, and therefore cost, of discovery on the former basis was hampering efficient and proportionate outcomes. The new regime treats the discovery process as substantially different. Parties to litigation are obliged to co-operate and in litigation on a scale such as is involved here there is a presumption for tailored discovery that requires each party to exercise judgement in confining what is discovered to the genuinely material documents, proportionate to the issues
being litigated.
1 Compagnie Financiére et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 (CA).
[3] At the outset of the discovery process, the parties agreed that each side would nominate the categories of documents sought from the other. The lists of categories were filed with the Court attached to a joint memorandum dated 3 October 2012. NZX stipulated 18 categories of documents, together with examples of the type of documents that they would expect to be discovered within each category.
[4] On 23 October 2013, NZX filed an application for an order that Ralec comply with the discovery orders made in 2012 by filing a revised affidavit of documents that listed only those required to be discovered under the discovery orders. NZX’s concern is that Ralec’s list of documents, which extends to some
28,900 open documents, amounts to over-discovery relative to the requirements under the current discovery rules, and the terms of the particular discovery orders made in these proceedings. Solicitors for NZX have not embarked on inspection of all the documents. Instead, they have considered a small sample, initially of 333 documents and subsequently of a further 171 documents. NZX’s solicitors (Bell Gully) acknowledge arguable relevance of some 40 per cent of the first tranche and
19 per cent of the second tranche of those samples that have been inspected.
[5] In September 2013, Bell Gully sent to Ralec’s New Zealand solicitors (Duncan Cotterill) a schedule of the documents from the first sample inspected that were considered to be entirely irrelevant.
[6] Ralec rejected the criticism. They endorsed each of the entries in that schedule with a justification by reference to the particular category of documents that had been sought on behalf of NZX, and the context for each document as Ralec perceived it to be relevant.
[7] I heard argument on a relatively extensive number of these examples. The argument did not produce any narrowing of the differences previously articulated as to how relevance was to be assessed in respect of individual documents.
[8] NZX’s relevant application invoked r 8.23 of the High Court Rules which provides as follows:
8.23 Incorrect affidavit of documents to be amended
If, by reason of any change of circumstances or an error or omission, an affidavit of documents filed in response to a discovery order appears to the person making discovery to be defective or erroneous, the person must promptly file and serve an affidavit that corrects or supplements the affidavit of documents.
[9] I have found only one case under the current rules in which the Court has ordered a party found to have over-discovered to re-do the discovery exercise so as to comply.2 Rule 8.23 affords the jurisdiction to do so. As with all aspects of interlocutory processes, proportionality needs to be at the forefront of the Court’s analysis. In some cases where only a modest extent of over-discovery is made out, but a repeat listing task would involve substantial work, the proportionate result
might be to recognise a presumptive entitlement for the inspecting party to have a discrete award of costs for the time and cost of having to consider more documents than ought to have been discovered.
[10] In other cases, the extent of the unnecessary imposition on the inspecting party may be sufficient to justify requiring the over-discovering party to undertake the exercise again so as to complete it in accordance with the rules. In any cases in which substantial over-discovery appears to have been used as a tactic to prolong or divert interlocutory processes, there is a risk that the prospect of subsequent adverse costs orders, which can seldom compensate for the total distraction and extra work, will not represent an effective sanction against tactical conduct in breach of the rules. Nor does that approach get the proceedings back on the course that the rules contemplate should be followed.
[11] A further consideration is the delay that would inevitably be caused if Ralec is required to re-do the whole of its discovery exercise. Concerns at the delay that would be caused were predictably raised in opposition to NZX’s application. In an affidavit sworn by Mr Robert McGirr, a partner at Wisewould Mahoney, the Melbourne solicitors for Ralec, he described the discovery process that has been undertaken. The affidavit confirms that it has been very time-consuming and
protracted. The agreement for sale and purchase to which these proceedings relate
2 Edge Protection Ltd v Bank of New Zealand [2013] NZHC 2592. See [21] below.
was concluded on 5 October 2009 and the parties should be in a position to progress their claims to determination as promptly as possible.
[12] An order requiring Ralec’s discovery lists to be re-done will inevitably delay the proceedings to a not insignificant extent. That consequence is a factor to be taken into account in assessing whether the order NZX seeks is warranted.
[13] For Ralec, Mr North SC raised a preliminary objection that NZX’s pursuit of this application before completion of the discovery process was in breach of an arrangement the parties had made to defer any interlocutory disputes until the present stage of the proceedings had been completed. There is no validity in the point. If NZX deferred an application of this type until it had completed the inspection phase, then there would be no point in pursing it. If NZX’s criticisms are valid and they are to have utility, then the matter has to be resolved now. The same point applies to Ralec’s own application to challenge the extent of confidentiality constraints that NZX has purported to impose, and which is dealt with later in this judgment.
[14] Mr North argued that it is not for an opposing party in litigation to challenge the discovering party’s perception of the appropriate scope of relevant documents. He submitted that Ralec had made a series of decisions in good faith, reflecting their views on relevance. He cited decisions made under Peruvian Guano regimes, or
variations thereof, recognising that entitlement.3 Mr North also relied on a
New Zealand Law Society seminar paper suggesting that respect for a judgement exercised in good faith by the discovering party will require a party challenging over-discovery under the regime to show that the over-discovering party’s process was flawed, or that their view regarding relevance is plainly wrong.4
[15] The extent to which the obligations have changed by requiring more confined discovery is not so radical as to justify rejection of the onus that applied under the
former regime. A strong foundation is needed to displace the respect for the
3 BNZ Investments Ltd v Commissioner of Inland Revenue (2007) 23 NZTC 21,045 (HC) at [101]
and Eli Lilly Canada Inc v Novopharm Ltd [2007] FC 1195 at [19], [20].
4 Laura O’Gorman “Discovery Orders” (paper presented to New Zealand Law Society New
Discovery Rules seminar, October 2011) 41 at 45.
discovering party’s good faith judgement as to relevance. However, depending on the context in which the listing of allegedly irrelevant documents has arisen, the more confined nature of the discovery obligation may require the Court to assess and possibly reject the discovering party’s claim to relevance somewhat more readily. The narrower the test for inclusion, the more likely it is that a mistaken approach to relevance can be made out.
[16] In the present case, Ralec complains that any order requiring them to re-do the discovery lists, which they argue will involve reconsideration of almost 29,000 documents, would be an undue imposition in terms of the cost and resources necessarily committed to it. Further, that it would unnecessarily delay progress in the proceedings. That objection is met by the submission from NZX that inspecting the full extent of documents discovered by Ralec is likely to incur additional costs of
up to $100,000 and delay their preparation towards trial.5
[17] The starting position under the new discovery regime is the scope of the obligation for standard discovery. Under r 8.7, the obligation is to disclose documents that are to be relied on by the discovering party, or which adversely affect the discovering party’s case, or that either support or adversely affect another party’s case. That breadth of documents generally ought to be further confined when tailored discovery is ordered for the proceedings. In the present case, the agreement between the parties is that documents within the categories they have stipulated for discovery are still to meet the test for standard discovery as set out in r 8.7. Accordingly, discovery in this case is to be of the scope of documents contemplated by r 8.7, but confined to the categories of documents that have been stipulated by the requesting party.
[18] Part of Mr North’s criticism of the approach to relevance adopted on behalf of NZX was that Ms Boos, the Bell Gully solicitor who completed an affidavit in relation to their review of the sample of Ralec documents, did not acknowledge
having proceeded from an analysis of the pleadings. Mr North submitted that that
5 This projection is on the assumption that inspecting all the presently discovered documents would cost $200,000, but anticipating a re-listing reduced the task by half, then the cost would reduce to $100,000. Boos affidavit, 20 November 2013 at [15].
was essential, and that it was the process that had guided the analysis of the breadth of relevant documents undertaken on behalf of Ralec by Mr McGirr.
[19] Classically that may well be correct, but relevance can also be gauged by a consideration of what contested issues will require determination in the proceedings. That distillation of course has to come from a review of the pleadings.6 I am satisfied in the present case that the analysis undertaken on behalf of NZX is not deficient on this ground. I treat Ms Boos’ summary of the assessment of the sample documents to be based on an adequate understanding of the contested issues.
[20] A further criticism of NZX’s analysis raised by Mr North was that the sample was too small to justify a concluded view that NZX was entitled to the order it sought. A total of 504 documents have been inspected out of nearly 28,900. In addition, Mr North criticised Mr Latimour for characterising the sample as having been randomly chosen, when the description of the review in Ms Boos’ affidavit did not confirm that the documents were indeed chosen randomly, or what process had been applied to choose the ones that were reviewed. Mr Latimour’s response was that he assumed responsibility for characterising the review as having been randomly chosen because that was the instruction he gave, and he was confident that it had been carried out. Mr North’s rejoinder was that that was an inadequate basis on which to prove that the sample of documents was indeed random.
[21] I accept that the sample is relatively small. The same argument that over- discovery of documents under the new rules had been claimed on an inadequate sample was raised in Edge Protection Ltd v Bank of New Zealand.7 In that case, the challenging party claimed that there had been over-discovery by its opponent, having sampled the first 1,000 electronic documents out of a list of 19,875. The relatively small size of the sample in that case did not prevent an order being made for re-
listing of relevant documents. Had I been left with any reservations that the approach to relevance adopted on behalf of Ralec in relation to the sample of documents that were the subject of argument was unusual or atypical, I would have been troubled by the small size of the sample. As it is, the consistency of the
arguments advanced to justify the approach to relevance adopted on behalf of Ralec has amply demonstrated that a consistent approach to relevance was adopted in relation to all of Ralec’s documents. At no point did Mr North argue that any of the particular examples where lack of relevance was asserted by Mr Latimour should be discounted because a different approach had been adopted in relation to them.
[22] Mr Latimour supported his argument that the Ralec parties had over- discovered by inviting comparison of the total number of documents discovered on behalf of NZX, namely some 9,000, as against the 28,900 discovered by Ralec. He invited the inference that there must have been too wide a test applied by Ralec, in light of an expectation that NZX as purchaser/plaintiff could be expected to discover more documents than the vendor/defendants.
[23] That superficial comparison is not persuasive. First, in a dispute about misrepresentation in the sale and purchase of assets, the vendor may well have substantially more relevant records than the purchaser. Further, the Ralec parties have not yet completed inspection of the NZX documents and the prospect of a criticism of under-discovery by NZX cannot be discounted.
[24] One aspect of the argument for NZX in criticising the breadth of relevance claimed in discovery of Ralec’s documents is that the work was done by Mr McGirr. It was suggested that Australian solicitors undertaking the task would still consider documents by reference to the Peruvian Guano test. Mr North refuted that suggestion and in one of his affidavits, Mr McGirr claimed familiarity from experience in Australian jurisdictions with the equivalent of the test applying under
the current New Zealand regime.8
[25] The stance adopted on behalf of Ralec to discovery was described in the following terms in a letter from Duncan Cotterill on 18 September 2013:
Given the volume of documents reviewed, and the absence of ‘high level’ papers, all those documents that NZX might regard as falling within the categories of requested documents have been discovered. Documents were
8 For instance, in the Federal Court, discovery applies only to documents that are directly relevant to the proceedings. Queensland, South Australia and New South Wales jurisdictions apply similar tests.
also included if they were relevant to understanding a high level document. This approach was adopted to avoid the artificiality and unhelpfulness that comes from a party choosing only to discover particular documents, such as selected emails in lengthy email chains, or only certain drafts of strategy documents.
[26] Among the more stark examples of the difference between the parties in assessing relevance was an email from a Ralec executive to an Australian solicitor whose firm had done work providing advice in relation to warehousemen’s liens, which apparently had some relevance to the development of the business.9 The email did not reflect any aspect of the advice, and merely recorded an agreement that the solicitors would redraft the characterisation of the work that had been involved in
the invoice for the work, following which the fee would be paid and the advice would be released. I took Mr North to defend its relevance on the basis that it provided an indication of the scope of work the Ralec companies did as vendors of the businesses sold to NZX. The fact that Ralec and solicitors retained on its behalf had discussions as to how the narration of work undertaken for Ralec would be recast for billing purposes could not possibly have any probative value. If there are no documents that more directly establish the nature of work being done, then this email could not help Ralec in making out the scope of work that was undertaken.
[27] A further example is a series of emails between the Ralec directors and an advertising agency as to which photographs of the directors to use on the company’s website.10 The emails were included as coming within marketing and sales plans, with relevance claimed because they revealed work done on advertising the business with an advertising agency retained. However, the choice of photographs and where they might be found could not assume any relevance.
[28] Mr North also justified the inclusive approach to listing documents because the majority of the categories of documents sought on behalf of NZX were described in terms of “all” such documents. That is not a reasonable interpretation of the scope of the opposing party’s request. It is clear that the scope of documents sought is all those that are otherwise discoverable once they are within the scope of the category,
and are recognised as having relevance by virtue of the test under r 8.7. I note that
9 RAC.00268.00.
Ralec’s own categories of documents sought from NZX mostly seek “all” such
documents.
[29] It appears that the vast majority of Ralec’s discovered documents in terms of their numbers comprise emails, with each email in a thread or chain being allocated separate status as a document. That separate status conforms with the Listing Protocol, but Ralec appears to have included all emails in a chain without testing each of them for their stand-alone relevance. Mr McGirr stated in his affidavit
opposing this application that:11
… the system found the most recent email and its thread so that the whole exchange was complete so that even if one or two emails in the chain were not necessarily germane to the relevant category, the approach adopted was to include the entire thread so that it could be understood in context.
[30] That approach attributes relevance to emails which do not warrant inclusion for their own sake. The consequence of upholding NZX’s objection is that Ralec is only to discover the links in a chain of emails that, standing on their own, have relevant content. NZX may then be left to speculate about asides or incidental references to the emails that are not discovered but, at least in this case, NZX’s application is brought on the premise that it accepts some context may be missing. The rules entitle NZX to insist that Ralec exclude the links in an email chain that do not have relevant content in their own right.
[31] A discrete component of NZX’s complaints about over-discovery related to the inclusion in the open part of Ralec’s list of a significant number of documents for which NZX expected Ralec to claim legal professional privilege. They include some
1,352 emails between Ralec and legal advisers, and a further 51 emails which are solely between lawyers in one or other or both of the Australian firms used by Ralec. Mr Latimour cited a practical concern for those conducting inspection on behalf of NZX in not knowing whether particular items within this category of documents had been disclosed inadvertently. That specific concern has been answered by confirmation on behalf of Ralec that privilege in respect of all such documents is waived.
[32] Beyond the concern in relation to legal professional privilege, NZX complained that the sample of presumptively privileged documents considered so far reveals a lack of relevance. For instance, there are exchanges of emails about the circumstances for execution of documents on behalf of Ralec. In this regard, the same test for relevance must apply. There seems no prospect that, for example, the timing of a meeting involving legal personnel, or an exhaustive list of attendees, will be relevant at trial. So, too, with arrangements for execution of documents. NZX has made out a valid concern for over-discovery of documents within this category.
[33] From the analysis of the documents instanced as irrelevant, and the exchanges of view and argument with counsel, I accept NZX’s characterisation of documents as irrelevant in respect of most of the types of documents considered. I note two exceptions. First, documents Ralec has discovered, presumptively because they are perceived to adversely affect Ralec’s own case. It is appropriate for Ralec to determine discoverability by applying a somewhat more liberal approach to the documents it perceives NZX may wish to rely on against it, such as in cross- examining Ralec witnesses.
[34] Examples in this category include two internal Ralec emails from different time periods. The first, from the managing director to other personnel, was on
23 July 2009.12 Although it appears to have been discovered as one in a chain of
emails settling arrangements for Ralec representatives to travel to Wellington for negotiations with NZX, that email includes:
I have attached the agenda and game plan documents which are very good and set the scene for some preliminary discussions amongst the Clear group before we meet them next Wednesday evening. The game plan document in particular is a summary of the discussions I held with NZX’s CEO Mark Weldon last Friday over about five hours. ...
[35] A cautious approach in discovering Ralec documents might treat that statement by the Ralec managing director as relevant, including for potential cross- examination of him as to the status of the other documents referred to in the email.
[36] A second example is taken from a string of emails on 27 and 28 September
2009, which mostly reflect informal banter between Ralec’s then chief operations officer and managing director about personal issues affecting the availability of one of them for meetings in relation to the sale to NZX. However, in one of the emails, the managing director comments:13
... if you can [attend the proposed meeting] without stuffing things up too much it would be very good to have you there obviously. This could be his last “look” at what he is buying? 8am is good.
[37] Adopting a liberal approach to what may be relevant to NZX, Ralec could treat this comment as a reflection on the nature or extent of disclosure that had been made to NZX in relation to the assets they were buying.
[38] However, NZX has dismissed any potential interest in either of these documents. That difference of view is a relevant component of what Mr North urged was a matter of judgement, in which it is difficult or even inappropriate for the Court to override the stance adopted in good faith by a litigant.
[39] In the case of both these examples, it is likely that there will be a document that more meaningfully attributes to Ralec the approach it adopted to negotiations with NZX at the respective times. If there is no more meaningful acknowledgement, then the components of the relevant emails become relevant. That limited recognition of relevance does not extend to other emails in a chain, and the emails are to be discovered on the basis that their content has relevance for its own sake, and not merely because it is a link in a chain, other components of which contain relevant material.
[40] A second but somewhat similar exception is internal Ralec notes or documents that reflect the development of Ralec’s plans as to the form of business being developed. The relevant document or documents should be limited to the best record of a proposal or development that is itself material to the issues in the proceeding. Not every iteration of a developing concept could be relevant. If Ralec anticipates that such internal documents need to be relied on by one or more Ralec
witnesses to confirm the development of material aspects of its business plans, then the document does meet the requirements for relevance.
[41] I am inclined to agree with NZX’s denial of relevance for many of the samples of such documents that Ralec claims to be relevant. However, I cannot entirely rule out relevance without knowing the state of other records of Ralec’s work in developing the businesses. An example is the photograph of a whiteboard diagram dated 10 July 2008.14 I agree with NZX’s criticism that, on its own, it is meaningless and therefore irrelevant. If, however, it constitutes the best aide memoire of a planning session undertaken by Ralec personnel, the upshot of which was a material development in its business, then one or more Ralec witnesses are
likely to want to rely on it to confirm that development. It cannot have relevance if, for example, minutes of the meeting were taken which expand on the cryptic notes in the photograph that are, on their own, of no probative value. Nor could it have relevance if the meeting did not produce a meaningful milestone in the development of the businesses that were the subject of NZX’s acquisition.
[42] I am satisfied that the extent of over-discovery is of sufficient magnitude in this case to warrant an order that Ralec re-list the documents, to apply a more focused and narrower test of relevance. That further assessment is to be consistent with the analysis and observations in this part of my judgment. I direct that a new list is to be filed and served by Friday, 2 May 2014. I reserve leave to Ralec to apply for variation of the order, if substantial impediments arise to completing the list as ordered.
Counterclaim defendants’ application for increased security for costs
[43] On 5 July 2012, I ordered that security for costs be provided by the Ralec entities as counterclaim plaintiffs against NZX and the two parties added as second and third counterclaim defendants, NZX Holding No 4 Limited and Mr Mark Weldon (the latter in his capacity as former chief executive of NZX).
[44] On 20 November 2013, the counterclaim defendants applied for orders increasing the extent of security for costs to be provided by the counterclaim plaintiffs to reflect what they claimed were substantially higher levels of costs and disbursements incurred in progressing discovery and inspection than had been anticipated at the time of the original application. Ms Boos completed a separate affidavit in support of the application which deposed that NZX had incurred approximately $750,000 on discovery and inspection work up to the time at which this application was made. She further projected that inspection of the present scope of Ralec discovered documents was likely to take 100 days and cost approximately
$200,000 to complete. If NZX’s first application was successful, resulting in a
reduction by half of the number of documents NZX was required to inspect to, say,
15,000, then Ms Boos still projected a cost of approximately $100,000 to complete inspection. She contrasted that with scale costs for inspection on a 3C basis of some
$17,600.
[45] My existing order for security for costs in relation to the discovery and inspection stage of the proceedings was for $35,000 in respect of the NZX entities and $25,000 for Mr Weldon. In Mr Latimour’s submissions in support of this application, he sought an additional $28,000 for NZX and $20,000 for Mr Weldon. Those sums were proposed on the basis that there might ultimately be orders in the range of $180,000 to $190,000 costs ordered against the counterclaim plaintiffs for the relevant stage of the proceedings.
[46] Those amounts included a significant disbursement for litigation support costs that Bell Gully have contracted out, in the vicinity of $50,000. Mr Latimour submitted that there was a precedent for recognising such significant disbursements of this type in my decision in the Todd Pohokura litigation.15 The allowance of the disbursement for Streamline Litigation Support in that case was after the event, when the justification for the expense having been incurred could be assessed on a better informed basis. In that case, it was not a straight addition to the extent of costs
incurred by solicitors for the successful parties, but was allowed on the basis that an
15 Todd Pohokura Ltd v Shell Exploration NZ Ltd HC Wellington CIV-2006-485-1600, 1 July 2011 at [66].
efficiency in the work required by those solicitors justified a corresponding reduction in the extent of costs above scale that were appropriate for them.
[47] Ralec opposed any increase in the level of security for costs ordered against them, contending that there had been no material change in the scope of the tasks required since security was originally sought. In addition, criticisms were advanced of the alleged inefficiencies in the manner in which NZX’s solicitors were undertaking the tasks. It was also submitted that since security for costs was argued in June 2012, Ralec was better able to assess NZX’s claims, enabling Mr North to submit that they are significantly lacking in merit.
[48] On the last point, there was no suggestion that if NZX were persuaded to discontinue its own claims as inevitably doomed to failure, Ralec would also abandon their counterclaims. Unless the relative lack of strength in NZX’s claims has a bearing on the separate pursuit of Ralec’s counterclaims or the scope of them, this point cannot add weight to Ralec’s opposition.
[49] As to the scope of work involved in the discovery and inspection stage, I accept that the present scope of the task is larger than NZX’s solicitors reasonably projected as at June 2012. However, the relevance of that is tempered by a number of factors. First, NZX has succeeded in its application for an order that Ralec re-list its documents to exclude those that are irrelevant on the current test for discovery. Secondly, there can be no clear division between the increased scale of the discovery and inspection tasks on NZX’s claims, as contrasted with the increase in scope on Ralec’s counterclaims. Although there continues to be a basic chronological demarcation, there is nonetheless a substantial overlap. Thirdly, although it is a factor that I can recognise only at an impressionistic level, as the work for the counterclaim defendants has progressed, it appears that NZX has assumed responsibility for the substantial bulk of the work. Accordingly, the justification for an increase in the scope of work undertaken on behalf of Mr Weldon is less than was the case in assessing the relative tasks in June 2012.
[50] Having heard relatively wide-ranging arguments about the discovery and inspection process in the context of the other current applications, I am satisfied that
if the counterclaim defendants are successful, then they will most likely be entitled to an award of costs for this aspect of the proceedings substantially in excess of the level of security ordered for this stage in June 2012. However, for the reasons I have just identified, a cautious approach should apply in revisiting the extent of the security provided for them. I consider that NZX is entitled to an additional sum of
$10,000. No further security in favour of Mr Weldon is justified. Nor am I prepared to order security that takes account of significant disbursements, such as the Streamline Litigation Support, at this prospective stage of assessing what possible cost entitlements would be, if NZX is successful in opposing the counterclaims.
[51] There will accordingly be an order that increased security for costs be provided in favour of NZX for an additional sum of $10,000 to cover costs at the discovery and inspection stage. That security is to be paid by 4 April 2014.
Challenge to NZX’s confidentiality claims
[52] On 20 November 2013, Ralec filed an interlocutory application seeking orders in two respects. The first sought a relaxation of the constraint stipulated by NZX for inspecting documents in respect of which it has claimed confidentiality. The simplest form of order sought was that all NZX documents that had been marked as confidential were to be provided for inspection on an open basis. Alternatively, Ralec sought an order that NZX’s confidential documents were to be available for inspection by counsel and all those involved in the New Zealand and Australian solicitors acting for Ralec, as well as the third and fifth defendants, Messrs Thomas and Pym.
[53] Because NZX has not formalised the verified lists for all tranches of the discovery of its documents, it is not committed to the finite grounds on which it claims confidentiality for all the documents in question. As I understood NZX’s position from Mr Cash, who responded for NZX on this application, there are two categories of document to which the concerns motivating Ralec’s application apply. First, there are 261 documents which have been provided to Duncan Cotterill in an entirely unredacted form for inspection by Duncan Cotterill as solicitors on the record, and Mr North as counsel retained, but which NZX has stipulated cannot be
shown to anyone else involved in Ralec’s case. Secondly, there is a category of document which comprised elements that are both confidential, and irrelevant, where NZX has redacted the parts that it treats as irrelevant, and seeks to impose the same level of constraint on access to the documents in relation to the unredacted parts of them that are treated as confidential.
[54] Mr Cash accepted, as he must, that Bell Gully is ready to discuss with Duncan Cotterill any concerns that arise in relation to particular documents, where Ralec either wishes to challenge the rationale for redacting parts treated by NZX as irrelevant, or where Ralec’s advisers consider they are impeded in taking full instructions by the inability to share the content of confidential documents with their clients.
[55] It is premature to consider challenges in relation to any individual documents. There is an onus on a party seeking to impose confidentiality constraints to justify the extent to which such constraints are asserted. The parties are to confer on an individual document basis as concerns arise and, if necessary, remaining disputes can be referred back to the Court.
[56] Ralec’s remaining concern on this part of their application was NZX’s insistence on acknowledgements that the discovered documents for which confidentiality is claimed would not be disclosed to Ralec’s Australian solicitors, or the parties. Mr North argued that this constraint was unjustified and was causing material prejudice in the preparation of Ralec’s case.
[57] NZX’s objection is that it should not have to trust its confidential documents to people who are not admitted as practitioners in New Zealand, and therefore not subject to the Court’s oversight in complying with the High Court Rules and New Zealand Law Society professional requirements. Further, the head of regulation for NZX and its acting corporate counsel, Ms Robyn Dey, completed an affidavit on
18 December 2013 citing concerns at what NZX considers to be unethical or inappropriate conduct by Mr McGirr in dealing with the media in relation to the present dispute. That affidavit annexed a letter written by Mr McGirr to the editor of the Dominion Post dated 6 July 2011, providing information in respect of the
proceedings, making disparaging comments about, and criticisms of, Mr Weldon, and indicating that Mr McGirr could make available a copy of the sale and purchase agreement, subject to his clients’ consent, when by its terms it was intended to remain confidential between the parties.
[58] By the time of the hearing on 30 January 2014, Ms Moncrieff of the Victorian Bar was in the process of being admitted in New Zealand as a barrister and solicitor and, once admitted, NZX accepts that she could be included with Mr North among those not physically practising in New Zealand who could access the confidential documents. On NZX’s view, the personnel involved at Duncan Cotterill, together with Mr North and Ms Moncrieff, represented a large enough team to enable analysis of NZX’s confidential documents without prejudicing the preparation of Ralec’s case.
[59] Mr North’s response to NZX’s criticisms of Mr McGirr’s conduct was that Mr McGirr was not admitted as a barrister and solicitor in New Zealand at the time he wrote the letter in question,16 and that that conduct was not sufficient to exclude Mr McGirr, or indeed his firm, from those who ought to be entitled to access the confidential documents because they are critical contributors to the preparation of Ralec’s case.
[60] The core obligations of practitioners on both sides of the Tasman in relation to accessing documents discovered by opposing parties in litigation are, in essence, the same. There is no basis for concern that Mr McGirr or Ms Moncrieff may misunderstand what is expected of them. Both are, or will be, subject to discipline in this jurisdiction by virtue of being admitted here, and the concerns raised by NZX are not sufficient to exclude them from those who can access confidential documents, once in each case they have undertaken to adhere to the legitimate scope of the constraints required on behalf of NZX.
[61] I accordingly order that NZX is to make its confidential documents available to Duncan Cotterill, Messrs North and McGirr, and to Ms Moncrieff (once she is
16 Mr McGirr has deposed that he was admitted on 1 September 2011, less than two months after he wrote the letter in question.
admitted in New Zealand), subject to each of those persons providing undertakings on usual terms to respect the confidentiality constraints imposed on behalf of NZX. Mr McGirr’s inclusion does not justify extending access to the documents to others in his firm who are not admitted in New Zealand.
[62] After the documents have been inspected by those so authorised, solicitors for NZX are to liaise reasonably with solicitors for Ralec as to the need and terms on which individual confidential documents might be discussed with those providing instructions on behalf of Ralec.
[63] In other respects, criticisms raised on behalf of Ralec at the apparent mistakes in the scope of documents for which confidentiality is being claimed should be dealt with informally, at least in the first instance.
NZX correspondence with Ralec shareholders
[64] The second aspect of the application filed on behalf of Ralec on
20 November 2013 sought an order that Bell Gully was to disclose a full list of the recipients of a letter it had written to shareholders in the Ralec companies, and an order prohibiting Bell Gully from any repetition of such communications.
[65] On 9 September 2013, Bell Gully wrote to an undisclosed number of shareholders in the Ralec companies, putting them on notice that the Court has power to order disclosure of the identity of those funding Ralec’s counterclaims and to order that those parties pay NZX’s costs in the event that NZX successfully defended Ralec’s counterclaims. The letter further warned that NZX would be likely to seek such an order in the event that it successfully defends Ralec’s counterclaims. Bell Gully also expressed the belief that the Ralec counterclaims “will fail at any trial”.
[66] On 18 September 2013, Bell Gully provided a copy of that communication to Duncan Cotterill. Bell Gully subsequently declined to list the shareholders of the Ralec companies to whom the letter had been sent, and defended criticisms that correspondence with shareholders of the Ralec companies was inappropriate. Bell Gully indicated that it had corresponded only with those whom it understood
were unrepresented shareholders, and that if it was wrong in that understanding, then Duncan Cotterill would be able to clarify any cases in which Bell Gully had inadvertently corresponded with a shareholder for whom Duncan Cotterill acted.
[67] Mr North argued that Bell Gully’s conduct in writing to unrepresented shareholders of defendant parties ought to be condemned as improper and unethical. He invited an analogy with the professional responsibility lawyers assume to not use language or conduct designed specifically to confuse, intimidate or unduly pressure an unrepresented opponent.17 Ralec did not claim that the letter had been sent to any shareholders for whom Duncan Cotterill are acting, so the complaint is to be considered on the basis that the letter did go only to unrepresented shareholders.
[68] Mr North’s argument included the premise that all shareholders of the Ralec companies would be required as witnesses. As at October 2011, the first defendant had 16 shareholders and the second defendant had 15 shareholders. However, Bell Gully’s letter does not refer in any way to the prospect that recipients might be witnesses in the case. The general rule that there is no property in a witness operates to ensure that, in preparing proceedings for court, one party cannot frustrate the preparation of opposing parties’ cases by preventing contact with factual witnesses. That is not a relevant consideration here.
[69] The other premise on which Mr North’s argument was based was that the Ralec companies were closely held by small groups of shareholders, mostly employees or those connected with the directors and employees, to an extent that all the shareholders were to be identified with the companies themselves. That is obviously not the position as a matter of law, and Mr North did not cite any circumstances that put Bell Gully on notice that the shareholdings of both Ralec companies were held so tightly by a group of shareholders so unified in their interests and purpose that they should be perceived by Bell Gully as having no standing independent of the companies. That analysis might well hold for the purposes of imposing ethical constraints when dealing with an opposing party in
litigation that, say, had only a husband and wife as the sole shareholders and
17 G E Dal Pont Lawyers’ Professional Responsibility (4th ed, Lawbook Co, Sydney, 2010) at
[21.280].
directors. I am not persuaded it could extend to the circumstances of these companies, for the purposes of making an adverse finding against Bell Gully in relation to its correspondence with unrepresented shareholders.
[70] The Court will treat as regrettable initiatives in litigation that divert attention from the prompt and efficient progress of the substantive issues requiring resolution. In this case, Ralec’s attempt to generate anti-NZX media comment, and NZX’s attempt to warn Ralec shareholders off providing financial support for Ralec’s counterclaim, both fall into that category. Sadly, so too do a variety of tactical ploys that come to the Court’s attention in civil proceedings. However, by and large such distractions remain beyond the scope of the matters that the Court should exert control over.
[71] In this present case, there is no jurisdictional basis, or indeed legal justification, for orders of the type that Ralec sought on the second aspect of its
20 November 2013 application.
Further interlocutory steps
[72] Mr North asked me to allocate a hearing date for the substantive trial, suggesting that the case would be ready by towards the end of this year, and ought to be determined. I will keep that request under review, but am not satisfied that the issues are thus far adequately defined to justify a reasonable projection of the length of trial that would be required, and when the parties would be ready for substantive hearing.
[73] Mr North also requested the allocation of a further case management conference, and that is appropriate. I propose that a further case management conference be convened by telephone, between Wednesday and Friday, 4 to 6 June
2014, at 4pm. Counsel are to indicate their availability for a telephone conference on those days and confer as to the need for the conference by mid May. A joint memorandum or separate memoranda are to be filed, identifying the issues to be traversed and the position of the respective parties, by 5pm on Friday, 23 May 2014.
Costs
[74] NZX is entitled to costs and disbursements on the two interlocutory applications pursued successfully on its behalf. I certify for second counsel.
[75] Ralec is entitled to one half of the costs ordinarily applicable to its application of 20 November 2013, together with disbursements incurred in relation to it.
Dobson J
Solicitors:
Bell Gully, Wellington for plaintiff and counterclaim defendants
Duncan Cotterill, Wellington for defendants and counterclaim plaintiffs
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